Holman v. Laulo-Rowe Agency

• Decision Date: 24 May 1993
• Docket Number: LAULO-ROWE,Nos. 91-35771,91-35772,s. 91-35771
• Citation: 994 F.2d 666
• Parties: Hugh H. HOLMAN and Gayle L. Holman, Plaintiffs-Appellants-Cross-Appellees, v.AGENCY; George Laulo, individually; Terry Rowe, individually; George Laulo and Terry Rowe, d/b/a Laulo-Rowe Agency, Defendants-Appellees-Cross-Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 666

994 F.2d 666

Hugh H. HOLMAN and Gayle L. Holman Plaintiffs-Appellants-Cross-Appellees, v. LAULO-ROWE AGENCY; George Laulo, individually; Terry Rowe individually; George Laulo and Terry Rowe, d/b/a Laulo-Rowe Agency Defendants-Appellees-Cross-Appellants.

Nos. 91-35771, 91-35772.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Oct. 7, 1992.

Decided May 24, 1993.

Stephen A. Doherty and Donald L. Ostrem, Graybill, Ostrem, Warner & Crotty, Great Falls, MT, for plaintiffs-appellants-cross-appellees.

Gary M. Zadick, Ugrin, Alexander, Zadick & Slovak, Great Falls, MT, for defendants-appellees-cross-appellants.

Appeal from the United States District Court for the District of Montana.

Before D.W. NELSON and REINHARDT, Circuit Judges, and CALLISTER, District Judge. ^*

CALLISTER, District Judge:

Appellants Hugh and Gayle Holman ("The Holmans") appeal from a District Court decision dismissing their action due to a lack of subject matter jurisdiction. We affirm.

Factual and Procedural Background

The Holmans are Montana farmers. They insured their crops against natural disaster under policies of insurance written by the Federal Crop Insurance Corporation (FCIC), a wholly-owned Government corporation established within the Department of Agriculture. See 7 U.S.C. § 1503 (1988). The Holmans obtained their insurance through the Laulo-Rowe Agency.

In 1984, the Holmans acquired new farm land in Chouteau County, Montana, on which they planted wheat and barley. They contacted the Laulo-Rowe Agency to procure crop insurance, and were allegedly assured that their crops were covered. But when the Holmans sought to collect that insurance after a 1984 drought destroyed their crops, they were informed that in fact no coverage existed.

The Holmans responded by filing suit in Montana state court alleging claims of negligence, bad faith, and breach of contract against the Laulo-Rowe Agency and two individual agents named George Laulo and Terry Rowe. It is undisputed that the suit contained no federal claims, named no federal defendants, and lacked diversity. The state court, however, dismissed the suit on the ground that it was governed by the Federal Crop Insurance Act (FCIA), 7 U.S.C. §§ 1501 to 1520 (1988), which established exclusive jurisdiction in the federal courts.

The Holmans then refiled the case in the United States District Court for the District of Montana, alleging jurisdiction based on the federal question provision, 28 U.S.C. § 1331 (1988). The Holmans concede, however that their federal court complaint contained only state law claims, named no federal defendants, and lacked diversity.

The defendants then filed a motion to dismiss the federal district court action on the ground that the FCIA preempted all state law claims and required the Holmans to go before an administrative agency, not a court, to obtain relief. The District Court did dismiss the case--prompting the Holmans to appeal--but did so on a ground somewhat different than that urged by defendants, prompting defendants to appeal as well.

The District Court found that it could only have subject matter jurisdiction if plaintiffs' state law claims could support federal-question jurisdiction under the doctrine of complete preemption. The District Court found that doctrine inapplicable and dismissed the case.

About a month after the federal district court action was dismissed, the Holmans filed a motion before the Montana state court seeking relief from the judgment dismissing their original action. On October 4, 1991, the Montana state court granted the Holmans' motion and they filed an amended complaint on November 1, 1991. That action has been held in abeyance pending the outcome of this suit.

Discussion

We review the District Court's decision de novo. Felton v. Unisource Corp., 940 F.2d 503 (9th Cir.1991). Our review begins with an examination of the doctrine of complete preemption. ¹ The doctrine applies in select cases where the preemptive force of federal law is so "extraordinary" that it converts state common law claims into claims arising under federal law for purposes of jurisdiction. Caterpillar, Inc. v. Williams, 482 U.S. 386, 107 S.Ct. 2425, 96 L.Ed.2d 318 (1987). The doctrine does not have wide applicability; it is a narrow exception to the "well-pleaded complaint rule" which makes the plaintiff the master of his or her complaint. Id. Under the well-pleaded complaint rule, federal question jurisdiction only exists when the complaint facially presents a federal question. By drafting a purely state law complaint, the plaintiff will ordinarily remain in state court. ²

There are, however, a handful of "extraordinary" situations where even a well-pleaded state law complaint will be deemed to arise under federal law for jurisdictional purposes. The test is whether Congress clearly manifested an intent to convert state law claims into federal-question claims. Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 107 S.Ct. 1542, 95 L.Ed.2d 55 (1987). The United States Supreme Court has identified only two federal acts whose preemptive force is extraordinary: (1) The Labor Management Relations Act (LMRA), 29 U.S.C. § 185(a), Caterpillar, supra; and (2) the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. §§ 1001 et seq., Taylor, supra. ³

For many years, the doctrine of complete preemption was applied exclusively to the LMRA. In that Act, the Court found a clear congressional intent to establish a uniform body of federal law governing collective bargaining agreements. Teamsters Union v. Lucas Flour Co., 369 U.S. 95, 82 S.Ct. 571, 7 L.Ed.2d 593 (1962). More recently, the Court has "reluctant[ly]" extended the doctrine to certain types of ERISA suits after finding clear legislative history indicating that ERISA was patterned after the LMRA. Taylor, 481 U.S. at 65, 107 S.Ct. at 1547. ⁴

Does such clear congressional intent exist in this case? The appellants find that intent in 7 U.S.C. § 1506(d):

The district court of the United States, including the district courts of the District of Columbia and of any territory or possession, shall have exclusive original jurisdiction, without regard to the amount in controversy, of all suits brought by or against the [FCIC].

This statute by its terms applies only to suits brought "by or against" the FCIC, and would not on its face apply to the present action where the FCIC is not a party. In addition, a review of the FCIA and its legislative history uncovers no congressional intent that claims against insurance agents for the agents' own errors or omissions are to be deemed to create federal-question jurisdiction.

The original FCIA, passed in 1938, allowed suit to be brought by or against the FCIC in state courts. That provision was deleted, however, by amendments passed in 1980 that established the present wording of section 1506(d), placing exclusive jurisdiction in federal courts to resolve suits "by or against [the FCIC]." These 1980 amendments did not, however, require suits against insurance agents for their own errors to be brought in federal court. This omission is telling given the legislative history behind the 1980 amendments.

The 1980 amendments to the FCIA dramatically increased the amount and availability of crop insurance. 1980 U.S.C.C.A.N. 3068, 3070-3081. To make the increased crop insurance program financially stable, Congress realized that "as with all insurance, federal crop insurance will have to be aggressively marketed." Id. at 3075. For the first time, private independent insurance agents were to be used extensively for this purpose. Id. at 3076. At congressional hearings on the 1980 amendments, private agents expressed enthusiasm about the program but requested, among other things, indemnification for losses suffered as a result of acts or omissions of the FCIC. Id. at 3076. There is no indication in the legislative history that the agents demanded to be included in the amendment providing that suits by or against the corporation be brought only in federal court. The final amendments did provide that agents would be indemnified for FCIC errors "except to the extent the agent or broker caused the...